Balanced-budget consumption taxes and aggregate stability in a small open economy

Meng, Qinglai and Xue, Jianpo 2015, Balanced-budget consumption taxes and aggregate stability in a small open economy, Economics letters, vol. 137, pp. 214-217, doi: 10.1016/j.econlet.2015.11.003.

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Title Balanced-budget consumption taxes and aggregate stability in a small open economy
Author(s) Meng, Qinglai
Xue, Jianpo
Journal name Economics letters
Volume number 137
Start page 214
End page 217
Total pages 4
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2015-12
ISSN 0165-1765
Keyword(s) balanced-budget rules
consumption taxes
small open economy
indeterminacy
Summary In a small open economy facing a perfect world capital market, this paper shows that if the government follows a balanced-budget fiscal policy based on endogenous consumption tax rates, then the steady state is saddle-path stable and hence beliefs-driven aggregate instability can be ruled out. This result is in contrast to those obtained in some closed economy models, and it suggests that unrestricted world capital mobility can help stabilize the economy under the balanced-budget fiscal policy based on consumption taxation.
Language eng
DOI 10.1016/j.econlet.2015.11.003
Field of Research 140199 Economic Theory not elsewhere classified
Socio Economic Objective 970114 Expanding Knowledge in Economics
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2015, Elsevier
Persistent URL http://hdl.handle.net/10536/DRO/DU:30080325

Document type: Journal Article
Collection: Department of Economics
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